March 24, 2023
Written by: Eleanor Kim, DMA Tax Counsel
DuCharme, McMillen & Associates, Inc. (DMA) provides this information relating to the 88th Texas Legislature Regular Session.
Two property tax relief bills – SB 3 by Paul Bettencourt and SB 5 by Tan Parker – have rapidly passed the Texas Senate. SB 3 increases the residence homestead exemption, and SB 5 proposes an across-the-board exemption of $25,000 for business personal property and establishes a franchise tax credit for property tax paid on business personal property. Read summaries of these bills under Property Tax, below.
Given that the two Senate bills embody Lt. Governor Dan Patrick’s stated priorities, it is not surprising that they passed within three weeks from the filing date. The bills will now head to the House of Representatives, but the Senate’s property tax relief proposals differ from the House’s proposal. HB 2 by Morgan Meyer would provide property tax relief by imposing an appraisal cap on all real property and was voted out by the House Ways & Means Committee.
The two houses will have to reach a consensus before the session ends on May 29, 2023.
Following are tax-related bills that have moved since our March 14th update on the 88th Texas Legislative Session.
Jump to bills by tax type:
- Sales/Use Tax
- Franchise Tax
- Hotel Occupancy Tax
- Mixed Beverage Tax
- Severance Tax
- Property Tax
HB 105 (Noble, Candy) would amend Tax Code §151.0038 to exclude from taxable information services the furnishing of an academic transcript. The House Ways and Means Committee voted out the bill on March 16, 2023. The Senate Finance Committee voted out the companion bill, SB 65 (Zaffirini, Judith), on March 22, 2023.
HB 300 (Howard, Donna) would: (1) amend Tax Code §151.313 to add children’s diapers, baby wipes, and baby bottles to the list of items eligible for the healthcare exemptions; (2) add Tax Code §151.3132 to exempt the sale of feminine hygiene products; (3) add Tax Code §151.3133 to exempt the sale of maternity clothing, and (4) add Tax Code §151.3134 to the exempt sale of a breast milk pumping product. The House Ways & Means Committee voted out the bill on March 13, 2023.
HB 1058 (Goldman, Craig) would allow a taxable entity to claim a franchise tax credit if the taxable entity owns a direct or indirect interest in a qualified development. The term “qualified development” means a development in this state that the Texas Department of Housing and Community Affairs determines is eligible for a federal low-income housing credit under Section 42, Internal Revenue Code. The House Ways & Means Committee voted out the bill on March 20, 2023. [Note: The bill also provides for a credit against state premium tax liability incurred under Chapters 221 through 226.]
SB 5 (Parker, Tan), as substituted, would allow a taxable entity to claim a franchise tax credit for property tax paid on inventory owned by the entity in Texas. The credit is the lesser of the total franchise tax due for the report after applying all other applicable credits or 20% of the aggregate amount of property tax paid on the taxable value of inventory owned by the taxable entity. The total amount of credits that the state may allow for all reports in a year may not exceed $700 million. The term “inventory“ means: (1) a finished good held for sale or resale, including (A) a dealer’s vessel and outboard motor inventory, as defined by Tax Code §23.124; (B) a dealer’s heavy equipment inventory, as defined by Tax Code §23.1241; or (C) retail manufactured housing inventory, as defined by Tax Code §23.127; (2) a raw or finished material held to be incorporated into or attached to tangible personal property to create a finished good; or (3) a material or supply, including fuel or a spare part, being held for future use. [Note: In the introduced bill, the term “inventory“ explicitly included residential real property described by Tax Code §23.12(a) and a dealer’s motor vehicle inventory, as defined by Tax Code §23.121, but they were later deleted. In the engrossed version, a dealer‘s motor vehicle inventory is explicitly excluded.] SB 5 is part of the property tax relief exemption for tangible personal property held or used for the production of income. See SB 5 under the heading of “Property Tax“ for the property tax proposals. On March 20, 2023, the Senate Finance Committee voted out the committee substitute, and the Senate passed the bill on March 22, 2023.
(applies to all taxes)
SB 61 (Zaffirini, Judith) would amend Tax Code §111.0047 (Suspension or Revocation of Permit or License) to allow a permit holder to elect the receipt of notices by electronic means. Service by electronic means is complete when the Comptroller transmits the notice using the contact information provided by the permit holder, and service by mail is complete when the notice is deposited by the Comptroller in a United States Postal Service post office. The bill would add a similar provision to Tax Code §151.203 (Suspension or Revocation of Sales/Use Tax Permit) and to Tax Code §171.256 (Forfeiture of Corporate Privileges). The Senate Finance Committee voted out the committee substitute on March 13, 2023, and the Senate passed the bill on March 21, 2023.
HOTEL OCCUPANCY TAX
HB 1689 (Murr, Andres) would amend Tax Code §352.005 to: (1) authorize a county to spend a portion of the county hotel occupancy tax revenue to create, maintain, operate, and administer an electronic tax administration system; (2) prohibit a county from using the same revenue to conduct audits; and (3) authorize a person who collects and remits a county hotel occupancy tax using the newly created electronic tax administration system to retain up to 1% of the tax collected and remitted as reimbursement. The House Ways & Means Committee voted out the bill on March 20, 2023.
MIXED BEVERAGE TAX
SB 341 (Springer, Drew) would amend the definition of permittee provided by Tax Code §183.001 to exclude a nonprofit entity temporary event permittee that sells only wine and malt beverages containing alcohol in excess of 0.5% by volume but not more than 17% by volume. The Senate Finance Committee voted out the bill on March 15, 2023.
HB 591 (Capriglione, Giovanni), as substituted, would add Tax Code §201.061 to exempt from natural gas production tax gas that is produced from a qualifying well that is consumed on the well site and that would otherwise have been lawfully vented or flared. The term “qualifying well“ means: (i) a well that is connected to a pipeline on which pipeline takeway capacity is not expected to meet the demand for gas produced by the well; (ii) is not connected to a pipeline and for which connection to a pipeline is technically or commercially unfeasible but is operated by a well operator who has contractually dedicated the well, the gas produced from the well, or the land or lease on which the well is located to a pipeline operator; or (iii) is not connected to a pipeline and is operated by a well operator who has not contractually dedicated the well the gas produced from the well, or the land or lease on which the well is located to a pipeline operator. A well operator and a pipeline operator, as applicable, would apply to the Texas Railroad Commission for certification of a well as a qualifying well and would submit the certification to the Texas Comptroller with an application for the tax exemption. The House Ways & Means Committee voted out the committee substitute on March 13, 2023.
HB 2 (Meyer, Morgan) would: (1) add Education Code §48.2555 to provide for a maximum compressed tax rate for the 2023-2024 school year and require the Education Commissioner to calculate the value of a school district’s maximum compressed tax rate by reducing it by 15 cents [This section would expire September 1, 2025]; (2) amend Tax Code §31.072(a) to change the current option to a mandate that at the request of a property owner, the collector for a taxing unit must enter a contract to escrow account the payment of property taxes; and (3) amend Tax Code §23.23 to impose a 5% cap on the annual increase of an appraisal district on all real property in lieu of the current 10% cap placed on residence homestead. The cap would apply on January 1 of the tax year following the first tax year in which the owner owns the property on January 1, and expires on January 1 of the first tax year following the year in which the property owner ceases to own the property; (4) provide that the cap limitation property continues on a residence homestead if the ownership of the property transfers to the owner‘s spouse or surviving spouse; (5) provide that the cap limitation applies to real property (other than residence homestead) that was acquired before tax year 2023 as if it had been acquired on January 1, 2023; and (6) provide that the term “real property“ includes a manufactured home that qualifies as a residence homestead regardless of whether the owner elects to treat the manufactured home as real property. On March 20, 2023, the House Ways & Means voted out the bill and HJR 1 that proposes the constitutional amendment that would authorize the law changes.
HB 260 (Murr, Andrew) would amend Tax Code §23.51(5) to provide that “wildlife or livestock disease or pest area“ as that term is used in “net to life“ means an area designated by a state agency as an area in which a disease or pest that affects wildlife or livestock exists or may exist, including a chronic wasting disease containment or surveillance zone and an area subject to a quarantine authorized by Subtitle C, Title 6, Agriculture Code. The House Ways & Means Committee voted out the bill on March 16, 2023.
HB 456 (Craddick, Tom) would amend Tax Code §11.18(a) to add royalty interest to the list of assets owned by a charitable organization that are exempt from property tax. The term “royalty interest“ means an interest in mineral rights in a producing leasehold in the state but does not include the interest of the person having the management and operation of a well. The House Ways & Means Committee voted out the bill on March 16, 2023.
HB 596 (Shaheen, Matt) would amend Tax Code §11.13 to permit a county commissioners court to exempt from county property tax up to 50% of the physician‘s residence homestead if the physician provides health care services to county residents who are indigent or a Medicaid recipient and if the county adopts the exemption. On March 13, 2023, the House Ways & Means Committee voted out the bill and HJR 45 that proposes the constitutional amendment that would authorize the law change.
HB 796 (Button, Angie Chen), as substituted, would add Tax Code §41.13 to require each appraisal district to create and maintain a publicly available and searchable Internet database that contains certain information regarding protest hearings conducted by the appraisal district‘s appraisal review board. The database may but is not required to include protest information for tax years that precede tax year 2024. The House Ways & Means Committee voted out the committee substitute on March 20, 2023.
HB 1228 (Metcalf, Will) would amend Tax Code §25.195 to require a chief appraiser, at the request of a property owner, to provide without a fee, electronically or by mail, a copy of the records, supporting data, schedules, and other material and information the owner or the owner‘s agent is entitled to under existing law. The bill would require a private appraisal firm to provide electronically or by mail all information pertaining to the property that the firm considered in appraising the property, including information showing each method of appraisal used to determine the value of the property and all calculations, personal notes, correspondence, and working papers used in appraising the property with respect to property appraised by the firm under contract with the district. The House Ways & Means Committee voted out the bill on March 20, 2023.
HB 1285 (Shine, Hugh), as substituted, would authorize the board of directors of an appraisal district to appoint one or more deputy taxpayer liaison officers to assist the taxpayer liaison officer and establishes that the taxpayer liaison officer is the taxpayer assistance officer for the district. The bill would authorize a property owner to file a complaint with the taxpayer liaison officer requesting resolution of a dispute with the appraisal district or the appraisal review board and provides options for resolution. The House Ways & Means Committee voted out the bill on March 20, 2023.
SB 3 (Bettencourt, Paul), as substituted, would: (1) amend Tax Code §11.13 to raise the state-mandated school tax exemption for residence homestead from $40,000 to $70,000 and to raise the additional exemption for individuals who are over 65 years old or disabled from $10,000 to $30,000 of the appraised value of the person‘s residence homestead and make adjustments pertaining to the freeze; (2) amend various provisions to provide for transitional relief for tax year 2023 in connection with property that qualified for the residence homestead exemption in tax year 2022 by allowing the deduction of $50,000 from the appraised value for an individual who qualified for the residence homestead exemption and an additional deduction of $15,000 for an individual who is over 65 years old or disabled; (3) amend provisions in Chapter 25 and Chapter 26, Tax Code, to provide for transitional relief for tax year 2023 by recognizing the increased homestead exemption; and (4) amend provisions in the Education Code to hold school districts harmless for the exemption. On March 15, 2023, the Senate Finance Committee voted out the committee substitute and SJR 3 that proposes a constitutional amendment that would authorize the changes. The Senate passed SB 3 and SJR 3 on March 22, 2023. [Note: SJR 3 contains a provision that appropriations of non-dedicated state tax revenue that are made for property tax relief as identified by the legislature by general law are not included as appropriations for purposes of determining whether the rate of growth of the appropriations exceeds the constitutional spending limit.]
SB 4 (Bettencourt, Paul) would provide a methodology outside the normal compression methodology for the 2023-2024 school year. In 2019, the legislature created the maximum compressed rate but also implemented a limitation by providing that if a school district‘s maximum compressed rate would be less than 90% of another district‘s maximum compressed rate, the school district‘s maximum rate is set at 90% of the other district‘s maximum compressed rate. This limitation has prevented further compression of tax rates by school districts that have recognized increases in school district appraisal roll. SB 4 reduces the floor limitation to 80%, which would allow school districts that were at the 90% limit to further compressed the tax rate. The Senate Finance Committee voted out the bill on March 15, 2023. On the Senate floor, an amendment was added to provide additional state aid to certain school districts affected by the adjustment for the 2022-2023 school year. The Senate passed the bill on March 22, 2023.
SB 5 (Parker, Tan), as substituted, would: (1) amend Tax Code §11.145 to delete the de minimis threshold of $2,500 and to exempt from taxation $25,000 of the appraised value of tangible personal property that is held or used for the production of income and that has taxable situs at the same location in the taxing unit; (2) allow related entities to aggregate the taxable value of tangible personal property held or used for the production of income at the same taxable situs at the same location in a taxing unit if the related entities are part of the same unified business enterprise. “Related business entity” means a business entity that: (A) engages in a common business enterprise with at least one other business entity; and (B) owns tangible personal property that:(i) is held or used for the production of income as part of the common business enterprise; and (ii) is located at the same physical address that tangible personal property owned by at least one other business entity engaged in the common business enterprise is located. “Unified business enterprise” means a common business enterprise composed of more than one related business entity; (3) add a provision to allow a person who leases tangible personal property to claim the exemption of $25,000 of the total appraised value of all tangible personal property held or used for the production of income and is subject to a lease, regardless of where the property is located in the taxing unit. This exemption applies to each separate taxing unit in which a person holds or uses tangible personal property for the production of income, and (4) requires the rendition of all tangible personal property that the person owns that is held or used for the production of income and has taxable situs in the appraisal district if the aggregate market value exceeds $25,000. [Note: The bill would allow a taxable entity to claim a franchise tax credit of 20% of the property tax paid on inventory owned by the entity and located in this state.] On March 20, 2023, the Senate Finance Committee voted out the committee substitute, and the Senate passed the bill with a one-floor amendment on March 22, 2023. [Note: SJR 2 (Parker, Tan) that proposes a constitutional amendment to would authorize the $25,000 exemption was heard by the Senate Finance Committee but is still pending in committee.]
If you have questions about the impact these bills may have on your business, contact our team today to consult with a DMA tax expert.
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